Student Loans Are Costly: Is College Worth Going into Debt?
As more and more jobs require bachelor’s degrees and beyond, college has become a necessity of survival that today’s students must find a way to afford. Many would agree there is little substitute for a thorough education, but should it be concluded that college is always worth the cost?
It certainly seems so according to the $31 billion increase over the last year in student loans borrowed, securing its #2 position in overall consumer debt. For the majority, (70% of graduates or 44.2 million borrowers total), it was not a question of if they should depend on student loans to cover costs, but when they would need to and how much they would borrow.
The average graduate from a bachelor’s degree program carries a student loan debt of $30,100. Certainly, if you plan on exceeding this amount, you may want to consider if it’s for a good reason.
Few experts would dispute the advantages of having a college degree, but it is important to ask “when can accumulating student loans cause more harm than good?” Before plunging into academia you will want to consider a few questions:
How much do you really expect this degree to earn you in the workforce?
How long will your undergraduate education be relevant?
How Much Should Furthering Your Education Cost?
When choosing my degree, I was personally torn between what areas of study others considered safe and what I enjoyed. Other factors contributed, but ultimately pursuing Visual Arts and Communication (sorry, I’m not interested in dental hygiene!), a somewhat riskier path, I did not let my student loan borrowing exceed what I felt my degree would be worth. Then, all throughout my program, I consciously developed the skills I would need to make an income that would allow for a timely repayment.
“The key,” according to College Board researcher Sandy Baum, “is to align student debt with expected income upon graduation. That means future musicians, for example, would be wise to borrow less than, say, future engineers.”
Research the starting salary of professionals in your field of study then plan to not exceed this amount when borrowing. In most cases, this ensures that your student loan can be paid back within 10 years.
Also, consider how long your degree will serve you before it becomes irrelevant or inapplicable. For example, if at some point in your career you expect to complete a higher degree or continuing education courses, you may want to offset these later costs by planning to spend less on your undergraduate degree.
If you or your spouse anticipate leaving the workforce to raise children, it may not serve the household finances to carry a debt for a degree that receives little use in later years. This is not to suggest that anyone should give up an education, just to give careful consideration to its final application. I have the sincerest admiration for fellow parents who can excel at homeschooling because of their Child Development degree. Additionally, their education is versatile should they choose to return to the workforce later on.
The Dangers of Defaulting on a Student Loan
Unfortunately, even when borrowing the minimum in student loans, the impact lasts for years to come. If careful attention is not given to the details of a loan—and its repayment—a seemingly manageable amount can balloon into an overwhelming burden.
In fact, the Consumer Federation of America reports that 14% of student loan borrowers (who most likely thought they could handle their loans) are currently delinquent or have defaulted on loan repayments for nine plus months. To put this further into perspective, an average of 3,000 borrowers are defaulting on their federal student loans every day.
Many consider defaulting on their loan without realizing the extent of the consequences. Minor as it seems, a delinquency on a federal loan lasting 90 days or more can be reported to credit bureaus and in turn lower your credit rating. If the situation becomes serious, individuals could have trouble applying and acquiring the most basic of services such as utilities, let alone qualifying for substantial loans. A repayment that progresses from delinquency to default (after 270-330 days depending on payment frequency) can cause any organization or institution associated with the loan to pursue an individual for the full balance of the loan, including interest. This, as grim as it sounds, is only the beginning and worse in the case of private loans.
When timely payments are made according to the average repayment plan, student loans can be successfully paid over time. However, income that could be used to supply your first home’s down payment, an emergency fund, or retirement savings, is lost in the interest required for the luxury of feasible payments.
Know Your Repayment Options
While many borrowers take comfort in secondary repayment options such as forbearance, deferment, and loan forgiveness (oh, to have it disappear with the quick filing of a form), these options are not reliable or guaranteed. Indeed in 2016, around 30% of the amount of Public Service Loan Forgiveness forms filed were denied. Those approved hinged on borrowers meeting a minimum repayment total.
It is a much better idea to plan on using one of the two most popular repayment plans, a Level (Standard) Repayment (lasting 10 years or less) or an Income-Based Repayment.
Federal student loan servicers are helpful in detailing the extent of their options and the implications.
Private loan servicers, on the other hand, have been known to be less than supportive.
After acquiring a loan and beginning repayment, it would be wise to seek additional information (always free) from a debt counseling service. They can identify choices beyond what most servicers can offer such as refinancing or loan consolidation, both of which have grown increasingly in popularity.
You may also obtain help with filing otherwise confusing paperwork and debt management tools necessary to keep you on track to a successful repayment.
With careful consideration, planning, and budgeting your education will be an incomparable benefit and be worth every cent in student loan and then some.
Reposted with permission from StudentLoanProfessionals.org.
Related Article: Is a College Degree STILL Worth the Expense?